Before You Buy & Before You Sell
Tick off each item as you review it. The checklist is saved locally in your browser.
How to use this checklist: Work through each question before making a trade. Checking off items helps ensure you have considered the key factors rather than acting on impulse. Your progress is saved automatically in your browser's local storage.
Before You Buy
15 questions to ask yourself before buying a stock
Do I understand the business?
Can you explain what the company does in two sentences? If you cannot describe the business model simply, you may not understand it well enough to invest.
What is the P/E ratio vs industry average?
Compare the stock's P/E ratio to the sector average. A significantly higher P/E may indicate overvaluation, while a lower P/E could signal a value opportunity or underlying issues.
Is the company profitable?
Check earnings per share (EPS) and revenue growth over recent quarters and years. Consistent profitability and growing revenue are signs of a healthy business.
What is the debt level?
Review the debt-to-equity ratio. High debt can be a red flag, especially if interest rates are rising or the company has inconsistent cash flows.
Is the dividend sustainable?
Check the payout ratio (dividends divided by earnings). A ratio above 80% may be unsustainable. Also review the dividend history for consistency and growth.
What is the competitive advantage?
Identify the company's moat: brand strength, patents, network effects, switching costs, or cost advantages. A durable competitive advantage protects long-term profits.
What is the revenue growth trend?
Look at revenue growth over the past 3-5 years. Is growth accelerating, stable, or declining? Consistent growth above inflation is generally positive.
Is insider buying or selling?
Check recent insider transactions. Significant insider buying can be a bullish signal, while heavy insider selling may indicate trouble ahead or overvaluation.
What is the valuation vs historical range?
Compare the current P/E, P/B, and P/S ratios to the stock's 5-year historical averages. Buying near the top of the historical range carries more risk.
What could go wrong?
Identify the key risk factors: regulatory changes, competition, technological disruption, customer concentration, or macroeconomic headwinds. Always consider the downside.
What is my target price and timeframe?
Define a clear target price based on your analysis, and a realistic timeframe for achieving it. This helps you stay disciplined and know when to take profits.
Where is my stop loss?
Determine the maximum loss you are willing to accept before entering the trade. Set a stop loss level to protect your capital and remove emotion from the decision.
How does this fit my portfolio allocation?
Consider how this position affects your sector exposure, diversification, and overall risk. A single stock should not exceed your predetermined allocation limit.
Am I buying because of FOMO or real analysis?
Be honest with yourself. If the decision is driven by fear of missing out after a price surge, step back and re-evaluate. Stick to your analysis, not the hype.
Have I read the latest earnings report?
The most recent earnings call transcript and financial statements contain the freshest information about the company's performance, guidance, and management commentary.
Before You Sell
10 questions to ask yourself before selling a stock
Has the reason I bought the stock changed?
Revisit your original investment thesis. If the fundamental reasons you bought the stock are still intact, a temporary price decline may not be a reason to sell.
Is the decline due to company issues or market conditions?
Distinguish between company-specific problems (bad earnings, management issues) and broad market sell-offs. If the whole market is down, your stock may be fine.
Am I selling because of fear or a logical reason?
Fear is a powerful emotion in investing. If the price drop triggers anxiety, pause and analyze whether the sell decision is based on facts or panic.
What are the tax implications?
Consider short-term vs long-term capital gains tax rates. If you have held the stock for less than a year, selling may trigger a higher tax rate on your gains.
Do I have a better place to put the money?
Before selling, identify the alternative investment. If you are selling just to hold cash, consider whether that is better than staying invested in the current position.
Is the stock still within my risk tolerance?
If the stock's volatility has exceeded your comfort level, or if the position size has grown too large due to appreciation, it may be time to trim regardless of the outlook.
Have I given the investment enough time to play out?
Good investments take time to compound. If you bought with a multi-year timeframe, selling after a few months may not give your thesis enough time to work.
What would I do if I didn't own this stock now?
This thought experiment helps separate emotion from logic. If you would buy the stock at the current price given what you know, then selling may not be the right move.
Am I selling just to feel active?
Sometimes investors trade simply because they feel the need to do something. If you have no strong reason to sell, sometimes the best action is no action.
Would I buy this stock at the current price?
If you would not buy the stock at today's price, you should consider selling. If you would, then holding is likely the better choice.